2765: The Disappearance of The Middle Class by Jacob Lund Fisker of Early Retirement Extreme on Building Wealth

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[00:01:11] good night's sleep. Just search for good sleep in your podcast app and be sure to pick the one from Optimal Living Daily. This is Optimal Finance Daily, episode 2765. The Disappearance of the Middle Class by Jacob Lundfisker of Early Retirement Extreme.com. And I'm your host and

[00:01:32] personal finance enthusiast, Diana Merriam. Now let's get right to today's post and start optimizing your life. The Disappearance of the Middle Class by Jacob Lundfisker of Early Retirement Extreme.com. I was pointed in the general direction of Huffington Post and their

[00:01:54] posts about the disappearance of the middle class and what they refer to as third world America and what we need to do to save it. As I was reading more and more, I felt more like grabbing

[00:02:05] someone and shaking them. I mean, compelled to write an answer. Unfortunately, I ran out of space on their site. So here it goes. I'll tell you what we need to do. The middle class needs to

[00:02:17] start by taking a very serious look at itself because all the problems that the middle class is undergoing could have been prevented by making different choices. The middle class can be divided into consumers and savers or producers. In recent times, consumers have far outweighed savers and

[00:02:36] producers, unlike say during more thrifty times. And so the middle class is often confused with consumers. Those of us who belong to the saver or producer side are positively thriving in this

[00:02:48] economy. The only thing we have to deal with is consumers who keep telling us to buy more stuff because apparently stuff makes you happy. I guess my former neighbors who had so much stuff stored

[00:02:59] in their garage that they had to park their car in the street must have been supremely happy. Irony aside, as a country, America is very productive. There are enough resources to live

[00:03:12] very well if those resources are spent wisely. We are twice as productive as we were 50 years ago. By all rational means, it should be possible to work only two weeks a month and live perfectly

[00:03:25] happy lives. Alternatively, it should be possible to work for less than a decade and then retire early. I did just that. You can do just that. Unfortunately, many people did not. They spent their riches without a second thought. Here's the exact problem with middle class consumers.

[00:03:44] As a group, it's net negative productive. It takes more than it gives. Despite how hard it works, it consumes more than it produces. It spends more than it earns. It lives above its means. This is possible because banks and credit cards have enabled this behavior through cheap credit.

[00:04:04] Whether this is the fault of the banking system or the middle class, that is, the creditor or the debtor, is an age-old question. It's like asking who's responsible for murders, the person pulling

[00:04:16] the trigger or the person giving him the gun. It comes back to personal responsibility. I'm not touching that one with a 10-foot pole in this post. I suspect you know where I stand on this issue.

[00:04:29] The worst part of it is living in a culture knowing that this didn't have to happen if people would just wake up. I'm middle class. As an academic scientist, I made less than newly

[00:04:40] graduated college grads in my field for most of my career, with a two-year exception at the end. However, instead of spending my money and going into debt buying the biggest house I could get

[00:04:51] my hands on, buying a new car and a new TV, with the only concern being whether I could make payments and generally maxing out my lifestyle to the best of my ability and to the extent my

[00:05:03] salary would allow, I saved money. In fact, I saved a lot of money. I lived far below my means. Now, many people don't want to do this. They don't want to give something up.

[00:05:16] They don't want to sacrifice. That's how they see it. The way I see it, I'm not giving up anything I like. I spend very deliberately. Some people call that pinching pennies. I call it prioritizing

[00:05:29] and not wasting money. In particular, I don't waste a lot of money on interest and fees because I want to buy something now rather than wait until I actually earned the money. And even then,

[00:05:40] I only buy things which I'm sure I'm going to use and enjoy. This alone means I'm getting things 20% cheaper than someone who's carrying a year's worth of spending on their cards. It's curious to me how people don't want to sacrifice yet are perfectly happy to struggle.

[00:05:57] My goal is tranquility, not instant gratification. As a result, while people were partying it up with home equity loans during the past decade, I was saving. As people are now struggling to make ends meet, I've retired financially independent. We're both middle class. We both made the same

[00:06:16] income. We just made different choices of whether to spend or whether to save the money. Maybe I understood how to handle my money better than most, yet whose fault is that? It wasn't for lack of trying to explain the concept of savings, yet it's hard to convince

[00:06:32] someone who's having fun that maybe they should save a little for a rainy day just in case. It's even harder to convince them to put aside 30% of their income. And if you think that's hard,

[00:06:43] try convincing someone to save 60% or more than that. Why should they when their house has been appreciating by 30% a year for the past three years? It's like having your own personal ATM machine, right? When you have two people in similar circumstances with the same options,

[00:07:00] but making different choices and consequently ending up in different places, we should not blame external circumstances. Yet what it seems like now is like the day after the big party. People are hungover and they blame the bartender, the banks. It's like they completely missed the

[00:07:19] connection to all the booze or credit when they were drinking the day before. Like the example in this post, people just don't seem to get it. Maybe it's because for some it was their first real

[00:07:31] drinking binge, like someone just passing legal drinking age with no experience of alcohol and consequently going overboard rather than learning slowly and being wiser about it. Maybe they should have listened more to their parents or grandparents,

[00:07:45] just like we could learn a few lessons about money from ours. Sure, we can now stick together and commiserate on our collective headache, but that doesn't solve the booze problem. The bartender or cheap credit is really not a problem if people are not abusing it.

[00:08:01] It becomes a non-issue. Maybe people need more financial education. It's pretty clear to me that anyone who cares to self-educate about credit and savings, and it's not rocket science, you know, would do just fine as a middle-class person. If anything, if the middle class is

[00:08:17] disappearing as the Huffington Post says it is, it's not because it's being killed off. It's because a group living on credit above its means is simply not viable as a species. Not in nature, not in sociology, not in economics. That really shouldn't be surprising to anyone,

[00:08:35] but apparently it is. We have a long way to go, but until we actually go, this problem will keep repeating itself over and over, getting increasingly worse as long as people are blaming everyone but

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[00:10:53] Balancing personal responsibility for financial choices with the impact of poor financial education and systemic issues is a tricky topic. On one side, there's the idea that people should be accountable for their own finances. This means making smart decisions about budgeting, saving,

[00:11:10] and investing. This is an area of focus for us on this podcast because this is where we have some agency and impact on our financial futures. But here's the catch. Many folks never get the

[00:11:24] financial education they need to make these informed choices, even when they seek it out. Instead, they're bombarded with conflicting information about managing money and come to believe that it's much more difficult than it is. Mix in a consumerist culture and predatory

[00:11:41] lending practices, it's not surprising that many people are lost when it comes to money. Then there are systemic issues that make things even tougher. Take someone with high medical costs, for example. No matter how responsible they are with their money, constant medical bills can

[00:11:57] drain their finances and limit their choices when it comes to making money. It's a tough spot that isn't just about making poor choices. It's about navigating a disadvantage out of one's control. So while being personally responsible is important, it's not the whole story. We need

[00:12:15] better financial education and systemic changes to help people manage their money more effectively. But that should do it for another edition of Optimal Finance Daily. I'll be back tomorrow as usual. So I'll see you there for the Wednesday show where your optimal life awaits.